Liquidity Risk

Analyze and manage risk associated with liquidity constraints

Liquidity risk is the potential for investment loss when an asset or financial instrument cannot be traded within a given timeframe. For a financial institution, a liquidity shortfall could damage not only its finances but also its reputation. Occasionally, liquidity risk could be impacted by the large or concentrated exposure in the portfolio.

This kind of risk can be classified into two types:

Funding liquidity risk – the loss incurred when a financial institution is unable to settle its obligations with immediacy